- MARK IT.
- Posts
- Earnings: To Help or to Hurt?
Earnings: To Help or to Hurt?
Issue // April 25, 2023
UPDATE
🌤️ Good Morning, and Happy Tuesday
We hope you had a great weekend and are ready to make this a productive week. We mentioned yesterday in our sponsorship post that final exams were starting up in most universities. So if you have finals or big essays in the next few weeks, we wish you the best of luck. You got this!
We also appreciate your positive feedback on our modified layouts and readability, which we improved a few weeks ago. Feel free to let us know any future thoughts by sending comments or suggestions to [email protected].
WEEK IN REVIEW
📈 Market Performance
JD Lasica, via flickr
As earnings season begins, the S&P has seemingly responded by breaking even last week. Most dips in the index recovered by the next trading day or even by the end of the day. Tuesday and Wednesday mornings saw roughly 0.5% drops from around 4,150 to 4,125 points. However, both trends bounced back by the end of the day. The index sits at a comfortable middle ground of 4,137.04 as of Monday's market close.
The lack of pre-earnings season jumps may worry some on Wall Street. More often than not, when many companies report earnings in the same week, the market sees higher volatility. Without a bullish trend beforehand, any decreases in the index value can chip away at gains made in the previous weeks.
📱Time for Tech Companies
In the coming week, many large-cap tech stocks are reporting earnings. Alphabet, Amazon, and Meta are among the companies slated to report later this week, and investors are looking closely. Here's why:
Much of the early 2023 gains in the S&P were led by tech stocks. From the New Year to now, Amazon (AMZN) rose roughly 23.7%; similarly, Alphabet/Google (GOOGL) shares jumped up 20.3%.
Continuing this momentum would be a welcome sign of a robust market, and a reversal of these gains would be a disappointment. Check the times for these earnings here: Business Insider. (Source: CNN Business)
WEEKLY WATCHLIST
👀 Keep a Look Out
via StockSnap
Similar to our issue before last quarter's earnings, we are not bringing any specific stocks to look out for, as our DCF valuations may change this week. Instead, we hope to report next week on the results of several stocks after earnings season, especially stocks that miss their estimates.
For this week, watch for any big tech stocks announcing their earnings from today onwards.
MARK IT. EXPLAINED
💵 DCF: Why Do Investors Use it? (Updated)
Source: MARK IT./Rahul Kannam
DCF stands for discounted cash flow. A DCF model is essential for value investors because it helps analyze a company's cash flow. Cash flows are crucial in understanding whether or not to invest in a company, as the cash flow trend indicates profitability (ex: if the said company doesn't have enough money to pay its debt six months from now).
The variables above are the discount rate and cash flow(s). The discount rate is used because of the time value of money; remember: a dollar today is worth more than a dollar tomorrow.
The variable is used to find the present value of the expected future cash flows. After plugging all numbers in, one can see if a stock's present (also called fair) value is higher or lower than the current stock price. If the calculated present value is lower than the current cost of investing, one would typically find better investments or alternatives.
To recap, DCF helps you put a number (or valuation) on stock investments in today's dollars. It makes understanding an investment's current value easier concerning the cash the company may generate. The stock is overvalued if the current stock price is greater than the calculated fair value. If the current price is lower than fair value, the stock would be undervalued and may be worth buying. Source: Investopedia
ONE MORE THING
🤝 Keep in Touch
This week's issue was edited and published by Abbas Akhtar. Our MARK IT. Explained section was written by contributing editor Rahul Kannam.
For general announcements or updates on what we're working on, follow Abbas on Twitter 👉 @RealAbbasAkhtar
Also, we want to hear your feedback! Send any comments or suggestions to [email protected]
Thanks again for reading!
